SNAP ANALYSIS: Lockerbie convict's release a milestone for Libya

By Christian Lowe

ALGIERS (Reuters) - Britain has decided to release the former Libyan agent convicted of the 1988 Lockerbie bombing on compassionate grounds, two British television stations reported late on Wednesday.

There was no confirmation of the report and authorities in Scotland, where Abdel Basset al Megrahi is being held, said no decision had been taken to allow him to return home.

What would his release mean for relations between the outside world and Libya, a country with vast untapped oil reserves now emerging from decades of international isolation?

BUSINESS OPPORTUNITIES

Many people in Libya expect there will be a link between al Megrahi's release and prospects for British companies in Libya. BP is already a major investor, having committed $1 billion to oil and gas exploration there. British and Libyan officials have not acknowledged a connection between Megrahi and future investment opportunities. But in a country where business success is still heavily dependent on political patronage, al Megrahi's release could open the way to new investment.

British defense contractors may also see dividends. Britain is already supplying missiles and air defense systems to Tripoli under a 2007 deal.

Change will not be instant, however, in the underlying problems with investment in Libya which include an unpredictable regulatory environment, a creaking bureaucracy and uncertainty over property rights.

LOCKERBIE VICTIMS' RELATIVES

Relatives of the 270 people killed in the Lockerbie bombing take differing views over the prospect of al Megrahi's release. Some, especially in Britain, believe the wrong man was convicted and that justice is best served if the Libyan is freed. But many of the relatives of the 189 Americans on board the flight see no justification for releasing a mass murderer so he can enjoy a hero's welcome back home.

TRIUMPH FOR LIBYAN LEADER

The release of al Megrahi, who is suffering from terminal prostate cancer, would be a personal triumph for Libyan leader Muammar Gaddafi. It would be well-timed too, coinciding with celebrations next month to mark the 40th anniversary of the revolution that brought Gaddafi to power. Though he handed al Megrahi over to Britain for prosecution, calculating that it would help get international sanctions against his country dropped, Gaddafi has maintained the man was innocent. He is likely to try to portray his release as a vindication of his stance. If al Megrahi comes home within the next two weeks, the Libyan leader -- ever the showman -- could parade him as a returning hero during anniversary celebrations and at an African Union summit he is due to host at the end of this month.

LIBYA NO LONGER THE PARIAH

The release of al Megrahi would represent the latest in a series of milestones on Libya's journey from pariah state to a country that has been restored to the international fold.

Steps on that journey have included a 2003 decision to renounce weapons of mass destruction and the 2007 release of five Bulgarian nurses and a Palestinian doctor convicted of infecting Libyan children with HIV.

A homecoming for al Megrahi would help draw a line under the Lockerbie episode just in time for a fresh endorsement of Libya's new status. Veteran Libyan diplomat, Ali Abdussalam Treki, will take over as President of the United Nations General Assembly on September 15. He will be the first Libyan to hold that post since it was created in 1946, the U.N.'s website said.

(Editing by Louise Ireland)